Managing money is a challenge for any family, and getting out of debt is a key objective for many families.
But how can a family who may be struggling with consumer debt find their way through the process of getting out of debt and staying out of debt?
The answers to this question are varied, depending on the circumstances of the family. But they all involve personal financial discipline.
First, where possible, families should avoid incurring consumer debt except for true necessities like a home, reliable transportation and education.
It is so important for a family to be able to distinguish between needs and wants. Needs are the basics that every family can’t do without while wants are things that a family can do without.
Second, whenever possible, you should save for your needs and avoid going into debt for them.
There are many young families in Rwanda with financial challenges. In most cases, these families are in homes that are larger and more expensive than they can afford.
Just because one is qualified for a mortgage does not mean that they can afford it.
But worse is when one goes into consumer debt for furniture, vacations, recreational vehicles, clothing and more. This is committing yourself to purchases with future earnings that in some cases never materialize.
So, if you find yourself and your family in debt and want to get out, there are a number of alternatives. It can be hard for one especially a family which has countless needs it can be extremely difficult to pay a loan at once.
However, the method of paying loans in instalments can work out pretty well with families. This method is called the debt elimination plan. Under this plan, you essentially prepare a calendar by month showing the monthly payments of all of your consumer debt in columns.
Starting with either the debt with the highest interest rate or the earliest pay-off date, commit as much money as you can budget to pay off that debt.
For example, if your payment is frw50, 000 per month and you can afford to pay an additional frw25, 000 to reduce the principle, start by paying frw75, 000 per month on that bill until it is paid off, while still making regular payments on your other debts.
Then, when the first bill is paid off, apply that frw75, 000 per month to the bill with the next highest interest rate, in addition to what you have been paying all along.
Let’s say that the second bill can be frw150, 000; you would apply the frw75, 000 monthly to that bill and pay frw225, 000.
When the second one is paid off, apply the frw225, 000 to your next bill, in addition to what you have been paying all along. Continue this process until you have paid off all of the outstanding consumer debt.
Whatever direction you take, it is important for families today to get their purchasing impulses under control and to make wise financial decisions.
Starting today with a program to get out of debt and stay out of debt will help families be stronger and more resilient financially, and better able to meet the financial needs of their families long term.